There’s a belief among business managers that labor is a “necessary evil” and needs to be treated accordingly.  This is great if you’re a boss but not if you’re an employee.

Since Ronald Reagan broke the air controllers’ strike in 1981, labor unions and the clout they traditionally gave workers have been on the decline.  But it hasn’t just been union busting that has helped management reduce the need for the “necessary evil” of labor; starting in the 1970s businesses began shipping jobs overseas where wages are lower and regulations nonexistent.  Most recently businesses laid off workers during the Great Recession, shifting the workload onto fewer and fewer overworked employees who were afraid to object for fear of losing even a bad job.

But sometimes minimal staff can’t do everything that has to be done.  So businesses have increasingly turned to temporary workers who can easily be let go when no longer needed.

Temporary workers, and now even some full-time staff, are classified as “independent contractors” allowing businesses to save the cost of workers comp and payroll taxes.  This type of “off-the-books” employment has always been with us, but in recent years has grown dramatically, giving rise to what some experts refer to as the “underground” or “gray economy.”  In a recent article in The New Yorker author James Surowiecki says tens of millions of people are now working off-the books – and paying no taxes as a result.

It is believed that working off-the-books is keeping unemployment numbers artificially high.  Economist Edgar Feige has been following the underground economy for 35 years and observed to Surowiecki that while the number of Americans working traditional jobs with benefits and taxes has dropped a great deal since the Great Recession, “personal consumption is higher than it was before the recession, and retail sales have grown briskly.”  In other words, many people not traditionally “employed” are still earning money some way.  Economist Bernard Baumohl says in the Surowiecki article that current retail sales suggest an actual unemployment rate of 5 or 6 percent instead of the “official” 7.6%.

Surowiecki says that in 2006 — before the recession — the I.R.S. estimated that $385 billion dollars in tax revenue was lost to the “gray economy.”  It’s thought to be much higher now.  If off-the-book workers were paying taxes, Surowiecki says “the deficit would be trivial.”

The deficit is one of the most contentious issues facing America today.  Conservatives and liberals are locked in a bitter struggle to either disenfranchise the poor or raise taxes on the rich.

But if a way could be found to collect the legitimate taxes tens of millions of Americans owe, neither of these steps would be necessary.  The question is, how?  Waitresses, for example, are required to report and pay taxes on tips.  But there’s no way to check how much money anonymous diners leave on lunch counters.

There will always be people who mostly work for cash.  But the trend in business away from employees in favor of off-the-books arrangements is starving our Treasury.  And since businesses that avoid paying workers comp and payroll taxes can undercut businesses that do, there’s growing incentive to work more and more with off-the-books employees.

In attempting to deal with the “necessary evil” of labor, more and more businesses are engaging in the “necessary evil” of inflating the jobless rate, cutting tax revenues and depriving workers of benefits.  What does this say about the foundation of our economic system – that businesses do best when screwing both workers and the government — and what does this portend for the future of our deficit?